Getting wages right - criminalisation and increased penalties

Underpayment of wages and wage theft will no longer be tolerated, with the Federal Government implementing significant measures in the Closing Loophole legislation to deter and punish non-payment of the correct wages to workers.

Likely from 1 January 2025, employers will be subject to new laws that criminalise the underpayment of wages and other monetary benefits. If found guilty, an employer may face significant financial penalties. Individuals may face prison. It is serious stuff.

As for non-criminal conduct, the maximum civil penalty for underpayments significantly increased on 27 February 2024. And there will be even higher civil penalties when the wage theft provisions commence.

Employers are rightly concerned. Underpayments happen. They shouldn’t, but they do. Complying with Australian industrial laws - which are changing all the time - is difficult. Individual circumstances can be complicated. Industrial instruments are typically difficult to interpret. Implementation of wage rules is sometimes imperfect. Even the most sophisticated organisations can slip-up.

But these new laws are not aimed at putting away bosses who make mistakes. Rather, they are there to punish employers who intend to underpay employees and those that do not take measures to ensure and audit for compliance.

It is important the employers are aware of this new crime and what steps can be taken to avoid prosecution. In this article, we break down each element of the offence and consider the nuances of what “intention” means. We outline the new civil remedy penalties. We explore options to mitigate risk.

Criminal wage theft - all attention will be on intention

Section 327A(1) of the Fair Work Act 2009 (Cth) spells out four elements of the new offence:

1. the employer is required to pay an amount to, on behalf of, or for the benefit of, an employee under the FW Act, a fair work instrument, or a transitional instrument;

2. the required amount is not an excluded amount;

3. the employer engages in conduct; and

4. the conduct results in a failure to pay the required amount to, on behalf of, or for the benefit of, the employee in full on or before the day when the required amount is due for payment.

The first two elements may appear complicated given how wordy they are. But they are relatively straightforward.

Firstly, the employer must be required to pay an employee an entitlement. That entitlement must come from a specific legal source. It could come from the FW Act, a modern award or an enterprise agreement.

Secondly, the amount cannot be an excluded amount. There won’t be many excluded amounts. Superannuation and some long service leave may be exempt. But it is important to check.

Both elements are “absolute liability” provisions. That means that the prosecutor does not need to prove what the employer knew or intended. The amount was either required to be paid or it was not.

The last two elements are different. Here, “intention” is a fundamental aspect of proving the offence. If there is no intention, there is no crime.

Under the Criminal Code, intention is defined as one of three things:

• a person has intention with respect to conduct if he or she means to engage in that conduct; or

• a person has intention with respect to a circumstance if he or she believes that it exists or will exist; or

• a person has intention with respect to a result if he or she means to bring it about or is aware that it will occur in the ordinary course of events.

The first definition is common sense. If you “mean” to do something, you “intend” to do it.

But what if an employer thought it was possible that the payment was an underpayment, but did not take steps to check?

This is where the new laws become complicated. The question is whether “intention” in this new regime includes indifference.

On one view, the Criminal Code describes indifference. For example, an employer who learns there is an error in their payroll system causing an underpayment but does nothing about it. That conduct seems to fit the bill.

On another view, the Criminal Code also provides a different definition for “recklessness”. A person is “reckless” to a result if they are aware of a substantial risk that a result will occur (i.e. underpayment) and, despite what they know, “unjustifiably” take that risk. This, too, describes indifference.

Technically, a person does not commit wage theft if they are “reckless” about an underpayment. It is not a fault element. Rather, they must “intend” to do it.

It is not clear whether indifference falls into either “intentional” or “reckless” conduct, or both. The distinction is fine. It may even seem to be splitting hairs. But this issue will likely come to the fore at some point. It may even be determinative of a particular case.

Honest mistakes or miscalculations will not be caught by the wage theft offence.

Consequences for wage theft

The consequence for wage theft depends on who is guilty.

If a corporation engages in wage theft, then it could be fined greater of either:

• $7,825,000; or

• if the court can figure out the value of the underpayment - three times that amount.

If an individual engages in wage theft, then:

• they could face up to 10 years imprisonment; or

• be fined the greater of either:

  • $1,565,000; or

  • if the court can figure out the value of the underpayment - three times that amount.

New civil penalties

Just because an underpayment is not criminal, does not mean an employer is off the hook.

For civil remedy provisions related to underpayments (including sham contracting and unlawful job advertisements), maximum penalties for bodies corporate that are not small business employers will increase. Maximum penalties for these provisions will be the greater of: 

• 1,500 penalty units ($469,500) (currently 300 penalty units or $93,900); or

• three times the amount of the underpayment, if the applicant seeks this kind of penalty.

For serious contraventions, maximum penalties for bodies corporate that are not small businesses will increase to the greater of:

• 15,000 penalty units ($4,695,000) (currently 3,000 penalty units or $939,000)

• three times the amount of any associated underpayment, if the applicant seeks this kind of penalty.

The increased penalties commenced on 27 February 2024. The ‘three times’ component commences when the wage theft laws commence.

Take steps to protect the business

Now is the time to take active steps to get payroll in order and avoid underpayments. This is especially so for organisations that are unsure about whether there is total compliance (and suspects there may not be).

Some practical measures include:

• identify all applicable industrial laws and instruments (particularly for organisations that operate across multiple industries or have a diverse workforce);

• conduct a review of work performed by staff and ensuring that those staff are correctly graded against a modern award or enterprise agreement;

• review payroll rules to ensure they are consistent with applicable industrial instruments;

• consider whether record keeping systems are recording accurate and reliable information;

• conduct regular audits to identify and rectify compliance issues; and

• undertake training for those responsible for wage compliance, including managers, ensuring payments are made in an accurate and timely manner.

Because of the potential for criminal prosecution, and increase penalties, it is important to seek legal advice to ensure compliance with obligations. Business would be well advised to consider an audit – and establishing a baseline – this year, to demonstrate compliance and good corporate governance for when the new laws commence.

We regularly assist clients in ensuring wage compliance, please reach out to us.

Authors: Sylvia Moses, Joshua Handley & Kristina Tato